Starbucks has just launched its ‘Reserve Roastery’ subscription program which some would argue is one of its best strategies yet. With the success of its mobile App that becomes a ‘tall order’ for a strategy that may not even be consistent with the core of its Competitive Posture.
John Warrillow in his article in Inc. magazine titled ‘7 Reasons Starbucks Just Launched a Subscription Service’ lays out what he believes is the strategy behind the coffee mega-chain’s new ‘Reserve Roastery’ subscription program. John believes that subscription models are the way of the future for many businesses and that subscribers are so much better than regular customers. You can read Jim’s article but in short he noted seven reasons why he believes its a great strategy:
- Free market research
- Data
- Stem the competition
- Recurring revenue
- Planning
- Cash
- Cross selling
Marcus Wohlsen in his article in WIRED magazine titled ‘Forget Apple Pay. The Master of Mobile Payments is Starbucks’ reported that Starbucks had gained so much traction with its mobile payment App that it was intending to bypass the store all together and to start allowing coffee delivery that customers could order by telephone effectively making Starbucks an eCommerce company. The subscription model is possibly an expression of this intent.
Wohlsen goes on to explain that the outstanding success of Starbuck’s mobile payments App may lie in the fact that it evolved organically out of its payment card. Customers were already tied to its payment cards and loyalty program and that the App was a natural extension of that relationship.
But does the success of a mobile payment App, underpinned by a successful loyalty program, really in any way lead to the launching of a subscription service where you can order your favourite coffee beans for home delivery? Kenichi Ohmae in his Harvard Business Review article titled ‘Getting Back to Strategy’ (Nov.-Dec. 1988) explains why getting back to strategy means getting back to a deep understanding of what a product (or service) is all about. Kenichi provides a range of examples one of which is the story of a Japanese home appliance company trying to develop the perfect coffee percolator, which we will come back to shortly.
Just looking to Starbuck’s history, some elements of its competitive strategy may be discerned and compared back against its new endeavours to see how far Starbucks is stepping out. Does it still have a deep understanding of its products and services?
In 1983, Howard Schultz travelled to Italy where he gained the inspiration of bringing the Italian coffee-house tradition back to the United States. He wanted to create a place for conversation and a sense of community. A third place between work and home. Somewhere that not only celebrated coffee but also brought a feeling of connection. The mission was to inspire and nurture the human spirit – one person, one cup, one neighbourhood at a time. Moving forward to today, ‘It happens millions of times each week – a customer receives a drink from a Starbucks barista – but each interaction is unique. Its just a moment in time – just one hand reaching over the counter to present a cup to another outstretched hand. But it’s a connection.’
Starbuck’s competitive posture lies in the connection it builds with its customers that is reinforced by its loyalty program. Its competitive posture, its positioning, is centred in this connection which is tied to physical location, people and great coffee. Take away the location and the people and the connection maybe gone, and if so then also the strength of its competitive posture, and what is left is great coffee – maybe.
Let’s now consider the Japanese home appliance company and the perfect percolator. They (the Japanese) sought to produce a percolator that would make good tasting coffee each and every time. They discovered that there were a whole range of factors that influenced whether the coffee tasted good including, to name a few:
- the beans and their quality and freshness
- the grinding, the grain size and ground beans’ distribution when water is poured over them
- the temperature of the water and timing as to when it is poured over the beans
- the quality of the water
Consider what the Japanese discovered and what that may say about the ability of Starbuck’s customers to make a great tasting cup of coffee everytime with their subscription supplied beans.
How likely is it that its customers will be able to recreate the coffee taste or experience that they enjoy when visiting their favourite Starbucks?
So what does this all say about the subscription program and the belief that it could be one of its best strategies yet? At best the subscription program will reflect an additional revenue source arising from those times when some of its customers are not close to their favourite store and want a home brew. At the other end, it could begin to undermine the competitive posture of Starbucks by allowing its customers to experience not so great tasting coffee and to lose the connection with their favourite store.
The real challenge for Starbucks is to replicate the connection it enjoys with its customers through its subscription service. How may it do this? Well maybe through:
- encouraging its home brewing customers to always enjoy their coffee with friends
- creating a space where they can share these home connections with others (social media)
- running barista courses so its customers know how to make the perfect home coffee brew
- selling only percolators that will deliver that perfect coffee each and every time.
If Starbucks was to get this formula right it could extend its in-store connection into its customers’ homes and extend its reach to touch new customers and build its community even further.
